“HOME INSURANCE rates are skyrocketing on Cape Cod, the islands, and in other coastal areas. Driving the increases are concerns by insurers that a major hurricane could wreak the kind of devastation that hurricanes have brought to other parts of the country. Some companies have simply stopped insuring in shore areas, forcing homeowners into the state’s FAIR Plan, the insurer of last resort.But Massachusetts need not simply accept this price spiral, because the state has options for making insurance more affordable. One is for state officials to take a closer look at the models of hurricane devastation that insurers use to justify their higher rates.

Companies hold these “black box” models closely, but a legislative commission recommended earlier this month that state officials seek access to them. The panel called for a new “independent public entity” to study the reliability of the models. Two members – state Senator Robert O’Leary of Barnstable and state Representative Eric Turkington of Falmouth – went further, calling for the state to create its own model or require that any private model be open to review by the attorney general. Such efforts make sense; rates for a product that homeowners have little choice but to buy ought to be based on defensible criteria.”

Folks, this Cowboy has been letting the totality of this mess sink in and then I read this comment on David Rossmiller’s blog that appears to sum things up well:

“For those scoring at home:1.Maria Brown blew the whistle and sued Nutt & McAlister of SKG, alleging sexual harassment, hostile work environment, and mentions N&Ms failure to turn over records to Judge Acker.2. Scruggs and Bartimus, Frickleton, Robertson & Groney have filed suit against State Farm, Nationwide, Allstate, USAA, and several engineering firms for overbilling the federal government for Hurricane Katrina damage.3. Jones, Funderburg have sued Dickie Scruggs, Don Barrett, Scruggs law firm, Barrett law office, Nutt & McAlister, and Lovelace law firm over payment of disputed funds. Jones and Funderburg have asked to court to take control of SKG assets.4. United States of America v. Dickie Scruggs, Zach Scruggs, Sidney Backstrom, Tim Balducci, and Steve Patterson for attempting to bribe Judge Henry Lackey.5. Balducci blew the whistle against Scruggs & Co, and pleads guilty to bribing Judge Lackey.6. Jim Hood, AG, sued State Farm for breach of the settlement agreement.7. State Farm sued Jim Hood, AG for breach of the settlement agreement.8. State Farm sued to disqualify Dickie Scruggs from Katrina cases.9. E.A. Renfroe & Co sues whistleblowers Cori and Kerri Rigsby for violating the Alabama Trade Secrets Act and breaching confidentiality agreements.10. Judge Acker appoints special prosecutors to prosecute Dickie Scruggs with criminal contempt related to the E.A. Renfroe suit against the Rigsby sisters.”

Except this post really sums up nothing about the real insurance issues or insurance law. Notice folks the implied threats against the Rigsby sisters, who by all accounts have had no involvement with the allegations against Scruggs. Most of what makes the so called insurance blogs these days is either old news, or half the story as Mr. Rossmiller himself pointed out in an rare moment of balanced commentary.

There is an informal brotherhood of those slabbed and/or destroyed. Among that brotherhood all know at least one person whose house was destroyed by wind but was only paid their flood coverage (if they had it). We are not professionally trained licensed engineers but in some cases the cause was most evident, such as in the picture of this house in Lakeshore which was also flooded but not subjected to wave action.

This is a picture of the house across the street also smashed and flooded. The window in the house was removed by the owner as they salvaged some of their contents from the interior. In both cases the contents of these houses stayed with the house instead of being swept from it like so many others.

This picture finishes the story, notice the house down the street left standing. All the homes on the street were built within a year or so of each other by the same builder. Also notice the hole in the roof of the house down the street that stood. How is it that the majority of the houses on this street stood while three houses in close proximity of one another were reduced to rubble? A tornado or mini tornado is the cause. There was a line of snapped trees that lined up perfectly with the woods across the field from the destroyed houses on this street and through to the woods on the other side. I personally know of at least one such resident who was only paid on their flood policy instead of their private wind policy. That’s right ladies and gents, the bill was on you, the taxpayers.

Of course, it didn’t take the wisdom of a wizard for any of us to figure out we were “ground zero”. All we had to do was take a look around and see nothing – “zero” – on the “ground” escaped Katrina’s wrath.

There’s still more nothing than something down here, rebuilding is stalled in the court, the economy is heading further south, and some are starting to wondering if we haven’t hit “Ground Zero for Hope”.

The right side of an insurance claim is the wrong side on after a hurricane.

When you purchase a homeowner’s policy with hurricane coverage, you expect the insurance provider to know what a hurricane is and what it does. If they don’t, you’d sure expect them to look it up and not make it up. Nonetheless, make it up appears to be exactly what some did.

All 82 Mississippi counties were included in the disaster declaration and 60% (49) were eligible for full federal disaster assistance. The insurance folks north of the Coast didn’t seem to have a problem understanding that water damage is covered if the wind blows a hole in your roof and water gets in your house.

Most of us didn’t even have a roof after Katrina blew through here. You would think, then, it wouldn’t be hard for the ones they sent down here to figure that water damage was done before the surge followed Katrina inland. Actually, it appears they did figure it out – probably right about the time they started trying to figure out ways to get by without paying when all that Katrina left behind was a slab.

The wrong side of a hurricane to be on is the one it takes a lawyer to make right.

Here are a few key definitions and concepts which might help those new to the insurance forum more rapidly understand the nature of the insurance problems our society faces. I will add more as time allows and hopefully we might combine them with other concepts.

What is Insurance?

One definition of insurance is a system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance provider for a premium. More basically insurance is the process of the assumption of risk from one party to another for a fee.

The key to understanding insurance is the concept of risk assumption. In insurance terms risk is the chance of loss of that which is insured.

For the purposes of this web site the main type of insurance studied is property/casualty in general and catastrophe insurance (CAT) in particular. ISO defines a catastrophe as an event that causes $25 million or more in insured property losses and affects a significant number of property/casualty policyholders and insurers.

What is the role of insurance providers?

Insurance providers core function in society is that of helping to manage risk. Insurance plays a vital role in helping individuals and businesses prepare for and recover from the potentially devastating effects of a disaster such as a catastrophic hurricane or earthquake.

Insurance providers help society pre-pay for their risk needs. Catastrophic insurance providers have a special role in helping entire communities pre-pay for their disaster needs. Because their losses are more volatile the property/casualty insurers invest largely in high-quality liquid securities, which can be sold quickly to pay claims resulting from a major hurricane, earthquake or man-made disaster such as a terrorist attack.

Who are the leading providers?

Data from the National Association of Insurance Commissioners (NAIC) identifies the 10 leading writers of non-governmental property/casualty insurance by direct premiums written during the 2006 calendar year.

NAIC percentages were based on the U.S. total including territories before reinsurance transactions, excluding state funds.

State Farm Group 10.0%

American International Group 7.6%

Zurich Insurance Group 5.6%

Allstate Insurance Group 5.6%

Travelers Group 4.4&

Liberty Mutual Insurance Group 3.7%

Nationwide Group 3.2%

Berkshire Hathaway Insurance Group 3.1%

Progressive Group 2.9%

Hartford Fire & Casualty Group 2.4%

It should be noted the federal government is considered by many CEO’s of insurance and individuals as the insurer of last resort. The federal government is also the sole insurance provider for basic flood coverage in the United States.

Today we begin with the weather forecast but not just any weather forecast mind you. First off is this story from Reuters which proclaims our property and casualty insurance rates in the US will remain high due to the massive hurricane that is surely coming to destroy us all. As a result, the article concludes our P&C rates will continue to increase. So proclaims the popular press which by the way has never met a scientific story on global warming and Hurricanes they failed to butcher.

So what’s so complicated about the long range weather forecast? Easy, these high priced models that are periodically publicly released (and butchered) aren’t really worth the paper Reuters wrote the story upon:

“A model is just that—a model. It is still based on many simplifying assumptions, with a high degree of uncertainty,” she said. “It can tell you, given where you have your insureds, what the maximum probable loss would be should a storm of a certain strength hit a certain area, but the question of frequency is more vexing.”

However, she noted that “while there is no consensus at all on climate change and the frequency of hurricane landfalls, most scientists agree that when storms do hit these days, their intensity is likely to be greater and will cause more damage.”

So here, in the National P&C Underwriter, an insurance industry trade publication, we discover a deeper truth about these climate models and as borne out by the last two Hurricane seasons which have also come complete with prediction of coastal doom; namely that weather models are notoriously unreliable predictors of when or where a windstorm may strike.

This basic fact does not stop insurers, especially those in reinsurance from paying big bucks for weather forecasting as most have their own in house forecasting units like this one. We submit that despite the limitations of weather modeling there has to be good reason the insurance industry keeps such a close eye on the weather. However, insurance seems to be one business that profits handily even when they completely miss on the extended forecast like these past two years.

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